In the following case the SEC alleges a fraudulent offering of promissory notes. The case below is an excerpt from the SEC web site:
“On April 8, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Central District of California against Luis Garg, Jason Zakocs, and four companies owned and/or controlled by Garg, RealFund Investment Trust ("RealFund"), First Atlanta, LP ("First Atlanta"), Weatherby LP ("Weatherby"), and Citiprop Corporation ("Citiprop"), for allegedly participating in fraudulent offerings of promissory notes. RealFund and Citiprop are based in, and Garg and Zakocs reside in, Los Angeles, California. First Atlanta and Weatherby are based in Atlanta, Georgia.
The Complaint alleges that, from at least April 2008 through January 2010, the defendants raised approximately $1 million from 20 to 30 investors who invested in high-yield promissory notes, issued by RealFund, First Atlanta, and Weatherby, the proceeds from which were to be used for real estate development projects. According to the Complaint, the defendants told investors that their investments were risk-free and guaranteed annual returns ranging from 8% to 24%. In addition to alleging that these representations were false, the Complaint alleges that the defendants falsely advised investors that their promissory notes would be fully secured by equity in the underlying real estate projects. The Complaint further alleges that, notwithstanding the defendants' assurances as to the safety of their investment program and unbeknownst to investors, one of the note issuers and real estate development companies for the investment program, First Atlanta, had been involved in bankruptcy proceedings for nearly the entire offering period. In addition, the Complaint alleges that, notwithstanding First Atlanta's default on some of the promissory notes beginning in September 2009, the defendants failed to disclose this information to new investors and continued to offer and sell their promissory notes as a safe and guaranteed investment through January 2010. According to the Complaint, the note offerings were not registered with the Commission, RealFund was not registered with the Commission as a broker or dealer, and neither Garg nor Zakocs were associated persons of a registered broker or dealer at the time they sold the promissory notes.
The Complaint claims that, based on this conduct, all of the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The Complaint also claims that RealFund, Garg, and Zakocs violated Section 15(a) of the Exchange Act.”
This is a photo of the National Register of Historic Places listing with reference number 7000063
Thursday, May 26, 2011
SEC CHARGED FORMER NASDAQ MANAGING DIRECTOR WITH INSIDER TRADING
Insider trading is the way you can make incredible amounts of money on Wall Street. Fortunately, for investors no privy to insider information the Obama Administration has created a champion in the current SEC. In the following case excerpted from the SEC web site the SEC sets forth the charges against a former managing director of the NASDAQ Stock Exchange:
“Washington, D.C., May 26, 2011 — The Securities and Exchange Commission today charged a former managing director of The NASDAQ Stock Market with insider trading on confidential information that he stole while working in a market intelligence unit that communicates with companies in advance of market-moving public announcements.
The SEC alleges that Donald L. Johnson traded in advance of such public announcements as corporate leadership changes, earnings reports and forecasts, and regulatory approvals of new pharmaceutical products. He often placed the illegal trades directly from his work computer through an online brokerage account in his wife’s name. Johnson obtained illicit trading profits of more than $755,000 during a three-year period.
Johnson also has been charged in a parallel criminal action announced by the U.S. Department of Justice today.
“This case is the insider trading version of the fox guarding the henhouse,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Instead of protecting NASDAQ client confidences, Johnson secretly traded on client information for personal gain, even using his NASDAQ office computer to make the trades.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Johnson brazenly stole nonpublic information from NASDAQ and its listed companies in breach of his duties of confidentiality to his employer and clients. Johnson assured at least one corporate official that she could share material nonpublic information with him because he was obligated as a NASDAQ employee to hold such information in confidence, and then he illegally traded on it.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Johnson illegally traded in advance of nine announcements involving NASDAQ-listed companies from August 2006 to July 2009. Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed company clients, shorting stocks on several occasions and establishing long positions in other instances. Johnson lives in Ashburn, Va., and worked in various positions for the NASD and NASDAQ for 20 years until his retirement from NASDAQ in September 2009.
According to the SEC’s complaint, Johnson worked in NASDAQ’s Corporate Client Group (CCG) from January 2000 to October 2006. He then transferred to the Market Intelligence Desk, a specialized department within the CCG that provides issuers with general market updates, overviews of their company’s sector, and commentary regarding the factors influencing day-to-day trading activity in their stocks.
The SEC alleges that Johnson had frequent and significant interactions with senior executives of NASDAQ-listed issuers, including CEOs, CFOs, and investor relations officers at his assigned companies. The corporate executives who shared nonpublic information with Johnson did so based on the understanding that it would be kept confidential and that Johnson could not use the information for his personal benefit.
For example, the SEC alleges that Johnson obtained illicit profits of approximately $175,000 by insider trading in the stock of United Therapeutics Corp. (UTHR). Johnson spoke by phone with executives at UTHR including the CFO and general counsel on Oct. 30, 2007, and he became aware of the successful completion of a trial for its drug Viveta (later renamed Tyvaso). Despite the nonpublic and highly confidential nature of the Viveta trial results discussed with him, Johnson purchased 10,000 shares of UTHR stock in his wife’s brokerage account on October 31. After UTHR issued a press release on November 1 announcing the successful trial results, Johnson began selling all of the stock that he had purchased the day before, placing sell orders online from his office computer at NASDAQ.
The SEC’s complaint charges Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest and a monetary penalty. Johnson’s wife Dalila Lopez is named as a relief defendant in the SEC’s complaint for the purpose of recovering illicit profits in her possession.
The SEC acknowledges the assistance of the Fraud Section of the Justice Department’s Criminal Division and the U.S. Postal Inspection Service. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force. The SEC also acknowledges FINRA and NASDAQ for their assistance in this investigation.”
If these allegations are true, then one might come to the conclusion that most of the people in power in the United States are just big crooks. At least the SEC, DOJ and, USPS seem to have some people working for these agencies who do not believe that fraud is just an excellent business practice used by America’s most talented entrepreneurs.
“Washington, D.C., May 26, 2011 — The Securities and Exchange Commission today charged a former managing director of The NASDAQ Stock Market with insider trading on confidential information that he stole while working in a market intelligence unit that communicates with companies in advance of market-moving public announcements.
The SEC alleges that Donald L. Johnson traded in advance of such public announcements as corporate leadership changes, earnings reports and forecasts, and regulatory approvals of new pharmaceutical products. He often placed the illegal trades directly from his work computer through an online brokerage account in his wife’s name. Johnson obtained illicit trading profits of more than $755,000 during a three-year period.
Johnson also has been charged in a parallel criminal action announced by the U.S. Department of Justice today.
“This case is the insider trading version of the fox guarding the henhouse,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Instead of protecting NASDAQ client confidences, Johnson secretly traded on client information for personal gain, even using his NASDAQ office computer to make the trades.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Johnson brazenly stole nonpublic information from NASDAQ and its listed companies in breach of his duties of confidentiality to his employer and clients. Johnson assured at least one corporate official that she could share material nonpublic information with him because he was obligated as a NASDAQ employee to hold such information in confidence, and then he illegally traded on it.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Johnson illegally traded in advance of nine announcements involving NASDAQ-listed companies from August 2006 to July 2009. Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed company clients, shorting stocks on several occasions and establishing long positions in other instances. Johnson lives in Ashburn, Va., and worked in various positions for the NASD and NASDAQ for 20 years until his retirement from NASDAQ in September 2009.
According to the SEC’s complaint, Johnson worked in NASDAQ’s Corporate Client Group (CCG) from January 2000 to October 2006. He then transferred to the Market Intelligence Desk, a specialized department within the CCG that provides issuers with general market updates, overviews of their company’s sector, and commentary regarding the factors influencing day-to-day trading activity in their stocks.
The SEC alleges that Johnson had frequent and significant interactions with senior executives of NASDAQ-listed issuers, including CEOs, CFOs, and investor relations officers at his assigned companies. The corporate executives who shared nonpublic information with Johnson did so based on the understanding that it would be kept confidential and that Johnson could not use the information for his personal benefit.
For example, the SEC alleges that Johnson obtained illicit profits of approximately $175,000 by insider trading in the stock of United Therapeutics Corp. (UTHR). Johnson spoke by phone with executives at UTHR including the CFO and general counsel on Oct. 30, 2007, and he became aware of the successful completion of a trial for its drug Viveta (later renamed Tyvaso). Despite the nonpublic and highly confidential nature of the Viveta trial results discussed with him, Johnson purchased 10,000 shares of UTHR stock in his wife’s brokerage account on October 31. After UTHR issued a press release on November 1 announcing the successful trial results, Johnson began selling all of the stock that he had purchased the day before, placing sell orders online from his office computer at NASDAQ.
The SEC’s complaint charges Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest and a monetary penalty. Johnson’s wife Dalila Lopez is named as a relief defendant in the SEC’s complaint for the purpose of recovering illicit profits in her possession.
The SEC acknowledges the assistance of the Fraud Section of the Justice Department’s Criminal Division and the U.S. Postal Inspection Service. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force. The SEC also acknowledges FINRA and NASDAQ for their assistance in this investigation.”
If these allegations are true, then one might come to the conclusion that most of the people in power in the United States are just big crooks. At least the SEC, DOJ and, USPS seem to have some people working for these agencies who do not believe that fraud is just an excellent business practice used by America’s most talented entrepreneurs.
SEC ALLEGES INSIDER TRADING BY HEALTH CARE PORTFOLIO MANAGER
In the following case the SEC alleges that a hedge fund manager profited from insider information. The case below is an excerpt from the SEC web site:
April 13, 2011
“The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
The SEC alleges that Skowron acted on confidential information he received from Benhamou prior to the public announcement and ordered the sale of the entire position in HGSI stock – approximately six million shares held by the six health-care related funds that Skowron co-managed. These sales occurred during the six-week period prior to HGSI’s public announcement. Skowron caused the hedge funds to sell two million shares in a block trade just before the markets closed Jan. 22, 2008. Changes to the trial resulting from the negative developments were announced publicly on Jan. 23, 2008. When HGSI’s share price dropped 44 percent by the end of the day, the hedge funds avoided losses of at least $30 million.
According to the SEC’s amended complaint, Skowron gave Benhamou an envelope of containing 5,000 Euros while they were attending a medical conference in Barcelona, Spain in April 2007. The cash was in appreciation for Benhamou’s work as a consultant. In February 2008, after the illegal HGSI trades were completed, Skowron asked Benhamou to lie about his communications with Skowron, which he did. In late February 2008, Skowron met Benhamou in Boston and attempted to hand him a bag containing cash in appreciation for his tips on the Albuferon trial and his continued silence. Benhamou refused the cash. However, while attending a medical conference in Milan, Italy in April 2008, Skowron gave Benhamou another envelope containing $10,000 to $20,000 in cash that Benhamou accepted.
The SEC charged Skowron and Benhamou with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 and seeks permanent injunctions, disgorgement of any ill-gotten gains with prejudgment interest, and financial penalties against them.
Simultaneous with the filing of the SEC’s amended complaint, the six hedge funds named as relief defendants agreed to settle with the Commission and pay disgorgement of $29,017,156.00 plus prejudgment interest of $4,003,669.00 without admitting or denying the allegations. The proposed settlement is subject to court approval. The six hedge funds are FrontPoint Healthcare Flagship Fund, L.P., FrontPoint Healthcare Horizons Fund, L.P., FrontPoint Healthcare I Fund, L.P., FrontPoint Healthcare Flagship Enhanced Fund, L.P., FrontPoint Healthcare Long Horizons Fund, L.P., and FrontPoint Healthcare Centennial Fund, L.P.”
Unfortunately, insider trading is just the way things have been done on Wall Street. If capitalism is just about who is the best at swindling others then the way the entire world economy is organized may have to be rethought. For if there are no rules then investors today need to try to gauge how a security is going to be manipulated by the unscrupulous and pay little attention at all to the fundamental health of a companies earnings growth. Perhaps the SEC is the institution riding a pale horse and bringing an apocalypse to the forces of financial thievery and thus saving capitalism.
April 13, 2011
“The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.
The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.
In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.
According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.
The SEC alleges that Skowron acted on confidential information he received from Benhamou prior to the public announcement and ordered the sale of the entire position in HGSI stock – approximately six million shares held by the six health-care related funds that Skowron co-managed. These sales occurred during the six-week period prior to HGSI’s public announcement. Skowron caused the hedge funds to sell two million shares in a block trade just before the markets closed Jan. 22, 2008. Changes to the trial resulting from the negative developments were announced publicly on Jan. 23, 2008. When HGSI’s share price dropped 44 percent by the end of the day, the hedge funds avoided losses of at least $30 million.
According to the SEC’s amended complaint, Skowron gave Benhamou an envelope of containing 5,000 Euros while they were attending a medical conference in Barcelona, Spain in April 2007. The cash was in appreciation for Benhamou’s work as a consultant. In February 2008, after the illegal HGSI trades were completed, Skowron asked Benhamou to lie about his communications with Skowron, which he did. In late February 2008, Skowron met Benhamou in Boston and attempted to hand him a bag containing cash in appreciation for his tips on the Albuferon trial and his continued silence. Benhamou refused the cash. However, while attending a medical conference in Milan, Italy in April 2008, Skowron gave Benhamou another envelope containing $10,000 to $20,000 in cash that Benhamou accepted.
The SEC charged Skowron and Benhamou with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 and seeks permanent injunctions, disgorgement of any ill-gotten gains with prejudgment interest, and financial penalties against them.
Simultaneous with the filing of the SEC’s amended complaint, the six hedge funds named as relief defendants agreed to settle with the Commission and pay disgorgement of $29,017,156.00 plus prejudgment interest of $4,003,669.00 without admitting or denying the allegations. The proposed settlement is subject to court approval. The six hedge funds are FrontPoint Healthcare Flagship Fund, L.P., FrontPoint Healthcare Horizons Fund, L.P., FrontPoint Healthcare I Fund, L.P., FrontPoint Healthcare Flagship Enhanced Fund, L.P., FrontPoint Healthcare Long Horizons Fund, L.P., and FrontPoint Healthcare Centennial Fund, L.P.”
Unfortunately, insider trading is just the way things have been done on Wall Street. If capitalism is just about who is the best at swindling others then the way the entire world economy is organized may have to be rethought. For if there are no rules then investors today need to try to gauge how a security is going to be manipulated by the unscrupulous and pay little attention at all to the fundamental health of a companies earnings growth. Perhaps the SEC is the institution riding a pale horse and bringing an apocalypse to the forces of financial thievery and thus saving capitalism.
TWO SEATTLE ATTORNEYS CAUGHT UP IN PUMP AND DUMP SECURITIES SCHEME
Selling products that don’t exist is certainly a very creative way to avoid both fixed and variable overhead costs. Of course selling stock in a company that makes products that don’t exist can be incredibly lucrative. The following is an excerpt from the SEC web site which harkens back to the days of the dot.com bubble. Many dot.com companies had soaring stock prices and never developed any kind of revenue stream because there was never any viable product or service to sell.
“The United States Securities and Exchange Commission (“Commission”) announced that on April 11, 2011, the Honorable Richard A. Jones, United States District Court Judge for the Western District of Washington, entered judgments of permanent injunction and other relief against Defendants David M. Otto, Todd Van Siclen, Charles Bingham and Wall Street PR, Inc.
The final judgment against Otto enjoins the Seattle attorney from violating Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 16a-13 promulgated thereunder. In addition to the injunctive relief, the final judgment against Otto orders him to pay $180,000 in civil penalties, $38,610.18 in disgorgement together with $6,751.15 in prejudgment interest and bars him from participating in an offering of penny stock for five years. Otto consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Seattle attorney Van Siclen enjoins him from violating Sections 5 and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Van Siclen orders him to pay $10,000 in civil penalties and bars him from participating in an offering of penny stock for three years. Van Siclen consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Texas stock promoter Bingham and his company Wall Street PR enjoins them from violating Sections 5 and 17(a)(2) and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Bingham orders him to pay $50,000 in civil penalties, $80,153 in disgorgement together with $15,608.43 in prejudgment interest. Bingham and Wall Street PR consented to the entry of the judgments without admitting or denying the allegations in the complaint.
On July 13, 2009, the Commission filed its complaint against the Defendants alleging that they violated the anti-fraud and registration provisions of the federal securities laws by, among other things, conducting a “pump-and-dump” scheme in which the defendants used a false and misleading public relations campaign to tout their client MitoPharm Corporation’s products. In reality, the products did not exist. Otto sold MitoPharm stock at a profit before its stock price plunged after the close of the promotional campaign.
In addition to the relief described above, Otto and Van Siclen each consented to the entry of an order in separate Commission administrative proceedings suspending them, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as attorneys before the Commission with the right to apply for reinstatement after three years and one year, respectively.”
This case describes some pretty incredible actions taken by officers of the court. Based upon this case and other similar cases, I question what law schools are teaching now days.
“The United States Securities and Exchange Commission (“Commission”) announced that on April 11, 2011, the Honorable Richard A. Jones, United States District Court Judge for the Western District of Washington, entered judgments of permanent injunction and other relief against Defendants David M. Otto, Todd Van Siclen, Charles Bingham and Wall Street PR, Inc.
The final judgment against Otto enjoins the Seattle attorney from violating Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 16a-13 promulgated thereunder. In addition to the injunctive relief, the final judgment against Otto orders him to pay $180,000 in civil penalties, $38,610.18 in disgorgement together with $6,751.15 in prejudgment interest and bars him from participating in an offering of penny stock for five years. Otto consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Seattle attorney Van Siclen enjoins him from violating Sections 5 and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Van Siclen orders him to pay $10,000 in civil penalties and bars him from participating in an offering of penny stock for three years. Van Siclen consented to the entry of the judgment without admitting or denying the allegations in the complaint.
The final judgment against Texas stock promoter Bingham and his company Wall Street PR enjoins them from violating Sections 5 and 17(a)(2) and 17(a)(3) of the Securities Act. In addition to the injunctive relief, the final judgment against Bingham orders him to pay $50,000 in civil penalties, $80,153 in disgorgement together with $15,608.43 in prejudgment interest. Bingham and Wall Street PR consented to the entry of the judgments without admitting or denying the allegations in the complaint.
On July 13, 2009, the Commission filed its complaint against the Defendants alleging that they violated the anti-fraud and registration provisions of the federal securities laws by, among other things, conducting a “pump-and-dump” scheme in which the defendants used a false and misleading public relations campaign to tout their client MitoPharm Corporation’s products. In reality, the products did not exist. Otto sold MitoPharm stock at a profit before its stock price plunged after the close of the promotional campaign.
In addition to the relief described above, Otto and Van Siclen each consented to the entry of an order in separate Commission administrative proceedings suspending them, pursuant to Rule 102(e) of the Commission's Rules of Practice, from appearing or practicing as attorneys before the Commission with the right to apply for reinstatement after three years and one year, respectively.”
This case describes some pretty incredible actions taken by officers of the court. Based upon this case and other similar cases, I question what law schools are teaching now days.
SEC CHARGES TWO SOUTH FLORIDA COMPANIES WITH COMMODITIES FRAUD
The following case involves the hot topic of commodities. Commodity price ran up for several months but have been softening recently. Fraud in securities, commodities, real estate etc., usually is not looked into by the public while prices are falling. It is more usual that it is when prices fall that people start taking an interest in any possible fraud cases. The case below is an excerpt from the SEC web site:
April 21, 2011
‘The Securities and Exchange Commission obtained the appointment of a receiver over two South Florida companies and permanent injunctions on April 1, 2011 and April 8, 2011, respectively, for conducting a fraudulent $27.5 million investment scheme with funds raised by offering and selling unregistered securities to investors nationwide from January 2010 until March 2011.
In its Complaint the SEC alleges that Commodities Online, LLC (“Commodities Online”) and Commodities Online Management, LLC (“Commodities Management,” and together, the “Defendants”), beginning in January 2010, represented to investors that Commodities Online was in the business of arranging and funding commodities contracts. The SEC further alleges that the Defendants represented to potential investors that Commodities Online purchased commodities only after arranging for a buyer and a seller. Defendants claimed that Commodities Online made money based on the price spread and told investors they would “earn 5% or more per month without price speculation.” Commodities Online sold participation units in such contracts and claimed to have invested at least $24 million raised from investors. Commodities Online also claimed to have raised at least $2.4 million from investors who invested in membership units in Commodities Online. Neither the participation units nor the membership units were registered with the Commission.
In its Complaint, the Commission alleges that Defendants made numerous material misrepresentations in connection with the offering and sale of the participation units and membership units. Although Commodities Online claimed on its website that, as of March 14, 2011, it had offered and paid a total of 48 contracts and that all completed contracts had returned the promised level of profits to the investors, the Commission alleges that in fact all completed contracts did not return the promised level of profit to investors and Commodities Online performed only a limited percentage of the commodities transactions it promised investors. Instead, according to the Complaint, Commodities Online dissipated investor funds by sending millions of dollars to companies controlled by its co-founder and former managing member and to one of its vice presidents. Further, Commodities Online held itself out as providing a viable, profitable investment vehicle to prospective investors, but, the Commission alleges, in reality it did not earn any net profits from entities it dealt with in connection with the purported commodities contracts. In addition, Commodities Online failed to disclose to prospective investors that its co-founder and former managing member is a convicted felon and failed to disclose that a vice president pled guilty to federal bank fraud and other felonies and is currently serving a term of supervised release.
The SEC’s Complaint charges Commodities Online and Commodities Management with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Defendants consented to the appointment of a Receiver, to the entry of permanent injunctions against future violations of the provisions of the securities laws with which they were charged, and to disgorgement, prejudgment interest, and civil money penalties in amounts to be determined by the Court.
The Court appointed David Mandel, an attorney with the law firm of Mandel & Mandel LLP of Miami, Florida, as a receiver over the Defendants. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities.”
April 21, 2011
‘The Securities and Exchange Commission obtained the appointment of a receiver over two South Florida companies and permanent injunctions on April 1, 2011 and April 8, 2011, respectively, for conducting a fraudulent $27.5 million investment scheme with funds raised by offering and selling unregistered securities to investors nationwide from January 2010 until March 2011.
In its Complaint the SEC alleges that Commodities Online, LLC (“Commodities Online”) and Commodities Online Management, LLC (“Commodities Management,” and together, the “Defendants”), beginning in January 2010, represented to investors that Commodities Online was in the business of arranging and funding commodities contracts. The SEC further alleges that the Defendants represented to potential investors that Commodities Online purchased commodities only after arranging for a buyer and a seller. Defendants claimed that Commodities Online made money based on the price spread and told investors they would “earn 5% or more per month without price speculation.” Commodities Online sold participation units in such contracts and claimed to have invested at least $24 million raised from investors. Commodities Online also claimed to have raised at least $2.4 million from investors who invested in membership units in Commodities Online. Neither the participation units nor the membership units were registered with the Commission.
In its Complaint, the Commission alleges that Defendants made numerous material misrepresentations in connection with the offering and sale of the participation units and membership units. Although Commodities Online claimed on its website that, as of March 14, 2011, it had offered and paid a total of 48 contracts and that all completed contracts had returned the promised level of profits to the investors, the Commission alleges that in fact all completed contracts did not return the promised level of profit to investors and Commodities Online performed only a limited percentage of the commodities transactions it promised investors. Instead, according to the Complaint, Commodities Online dissipated investor funds by sending millions of dollars to companies controlled by its co-founder and former managing member and to one of its vice presidents. Further, Commodities Online held itself out as providing a viable, profitable investment vehicle to prospective investors, but, the Commission alleges, in reality it did not earn any net profits from entities it dealt with in connection with the purported commodities contracts. In addition, Commodities Online failed to disclose to prospective investors that its co-founder and former managing member is a convicted felon and failed to disclose that a vice president pled guilty to federal bank fraud and other felonies and is currently serving a term of supervised release.
The SEC’s Complaint charges Commodities Online and Commodities Management with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Defendants consented to the appointment of a Receiver, to the entry of permanent injunctions against future violations of the provisions of the securities laws with which they were charged, and to disgorgement, prejudgment interest, and civil money penalties in amounts to be determined by the Court.
The Court appointed David Mandel, an attorney with the law firm of Mandel & Mandel LLP of Miami, Florida, as a receiver over the Defendants. Among other things, the receiver is responsible for marshaling and safeguarding assets held by these entities.”
SEC ADOPTS RULES FOR A WHISTLEBLOWER PROGRAM
The following excerpt is from the SEC web site and discusses rules of the whistleblower program as prescribed by the Dodd-Frank Act:
“Washington, D.C., May 25, 2011 – The Securities and Exchange Commission today adopted rules to create a whistleblower program that rewards individuals who provide the agency with high-quality tips that lead to successful enforcement actions.
The new SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.
To be considered for an award, the SEC’s rules require that a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
“For an agency with limited resources like the SEC, it is critical to be able to leverage the resources of people who may have first-hand information about violations of the securities laws,” said SEC Chairman Mary L. Schapiro. “While the SEC has a history of receiving a high volume of tips and complaints, the quality of the tips we have received has been better since Dodd-Frank became law. We expect this trend to continue, and these final rules map out simplified and transparent procedures for whistleblowers to provide us critical information.”
The SEC’s rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.
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FACT SHEET
Establishing a Whistleblower Program
SEC Open Meeting
May 25, 2011
Background
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the SEC to pay rewards to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions.
In passing the Dodd-Frank Act, Congress substantially expanded the agency’s authority to compensate individuals who provide the SEC with information about violations of the federal securities laws. Prior to the Act, the agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10 percent of the penalties collected in the action.
Rules Requirements
The final rules define a whistleblower as a person who provides information to the SEC relating to a possible violation of the securities laws that has occurred, is ongoing or is about to occur.
To be considered for an award, the final rules require that a whistleblower must:
Voluntarily provide the SEC …
In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative.
… with original information …
Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.
… that leads to the successful enforcement by the SEC of a federal court or administrative action …
A whistleblower’s information can be deemed to have led to a successful enforcement action if:
The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies prongs (1) or (2) above.
… in which the SEC obtains monetary sanctions totaling more than $1 million.
The rules permit aggregation of multiple Commission cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.
The final rules further define and explain these requirements.
Key Concepts
Avoiding Unintended Consequences:
Certain people generally will not be considered for whistleblower awards under the final rules.
These include:
People who have a pre-existing legal or contractual duty to report their information to the Commission.
Attorneys (including in-house counsel) who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
People who obtain the information by means or in a manner that is determined by a U.S. court to violate federal or state criminal law.
Foreign government officials.
Officers, directors, trustees or partners of an entity who are informed by another person (such as by an employee) of allegations of misconduct, or who learn the information in connection with the entity’s processes for identifying, reporting and addressing possible violations of law (such as through the company hotline).
Compliance and internal audit personnel.
Public accountants working on SEC engagements, if the information relates to violations by the engagement client.
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
Certain other people – such as employees of certain agencies and people who are criminally convicted in connection with the conduct – are already excluded by Dodd-Frank.
Under the final rules, the Commission also will not pay culpable whistleblowers awards that are based upon either:
The monetary sanctions that such culpable individuals themselves pay in the resulting SEC action.
The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated.
The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.
Providing Information to the Commission and Seeking a Reward:
The rules also describe the procedures for submitting information to the SEC and for making a claim for an award after an action is brought. The claim procedures provide opportunities for whistleblowers to fairly present their claim before the Commission makes a final award determination.
Under the final rules, the SEC also will pay an award based on amounts collected in related actions brought by certain agencies that are based upon the same original information that led to a successful SEC action.
Clarifying Anti-Retaliation Protection:
Under the rules, a whistleblower who provides information to the Commission is protected from employment retaliation if the whistleblower possesses a reasonable belief that the information he or she is providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. In addition, the rules make it unlawful for anyone to interfere with a whistleblower’s efforts to communicate with the Commission, including threatening to enforce a confidentiality agreement.
Supporting Internal Compliance Programs:
The final rules do not require that employee whistleblowers report violations internally in order to qualify for an award. However, the rules strengthen incentives that had been proposed and add certain additional incentives intended to encourage employees to utilize their own company’s internal compliance programs when appropriate to do so.
For instance, the rules:
Make a whistleblower eligible for an award if the whistleblower reports internally and the company informs the SEC about the violations.
Treat an employee as a whistleblower, under the SEC program, as of the date that employee reports the information internally – as long as the employee provides the same information to the SEC within 120 days. Through this provision, employees are able to report their information internally first while preserving their “place in line” for a possible award from the SEC.
Provide that a whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of an award, and that a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the amount of an award.
Other Recent Actions
Office of the Whistleblower:
In addition to whistleblower rules, the Dodd-Frank Act called upon the SEC to create an Office of the Whistleblower. That office, now headed by Sean McKessy, works with whistleblowers, handles their tips and complaints, and helps the Commission determine the awards for each whistleblower. The initial staffing of the office has been completed and the Investor Protection Fund, which will be used to pay awards to eligible whistleblowers, has been fully funded.”
“Washington, D.C., May 25, 2011 – The Securities and Exchange Commission today adopted rules to create a whistleblower program that rewards individuals who provide the agency with high-quality tips that lead to successful enforcement actions.
The new SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.
To be considered for an award, the SEC’s rules require that a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.
“For an agency with limited resources like the SEC, it is critical to be able to leverage the resources of people who may have first-hand information about violations of the securities laws,” said SEC Chairman Mary L. Schapiro. “While the SEC has a history of receiving a high volume of tips and complaints, the quality of the tips we have received has been better since Dodd-Frank became law. We expect this trend to continue, and these final rules map out simplified and transparent procedures for whistleblowers to provide us critical information.”
The SEC’s rules will be effective 60 days after they are submitted to Congress or published in the Federal Register.
# # #
FACT SHEET
Establishing a Whistleblower Program
SEC Open Meeting
May 25, 2011
Background
Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the SEC to pay rewards to individuals who provide the Commission with original information that leads to successful SEC enforcement actions and certain related actions.
In passing the Dodd-Frank Act, Congress substantially expanded the agency’s authority to compensate individuals who provide the SEC with information about violations of the federal securities laws. Prior to the Act, the agency’s bounty program was limited to insider trading cases and the amount of an award was capped at 10 percent of the penalties collected in the action.
Rules Requirements
The final rules define a whistleblower as a person who provides information to the SEC relating to a possible violation of the securities laws that has occurred, is ongoing or is about to occur.
To be considered for an award, the final rules require that a whistleblower must:
Voluntarily provide the SEC …
In general, a whistleblower is deemed to have provided information voluntarily if the whistleblower has provided information before the government, a self-regulatory organization or the Public Company Accounting Oversight Board asks for it directly from the whistleblower or the whistleblower’s representative.
… with original information …
Original information must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources.
… that leads to the successful enforcement by the SEC of a federal court or administrative action …
A whistleblower’s information can be deemed to have led to a successful enforcement action if:
The information is sufficiently specific, credible and timely to cause the Commission to open a new examination or investigation, reopen a closed investigation, or open a new line inquiry in an existing examination or investigation.
The conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action.
The whistleblower reports original information through his or her employer’s internal whistleblower, legal, or compliance procedures before or at the same time it is passed along to the Commission; the employer provides the whistleblower’s information (and any subsequently-discovered information) to the Commission; and the employer’s report satisfies prongs (1) or (2) above.
… in which the SEC obtains monetary sanctions totaling more than $1 million.
The rules permit aggregation of multiple Commission cases that arise out of a common nucleus of operative facts as a single action. These may include proceedings involving the same or similar parties, factual allegations, alleged violations of the federal securities laws, or transactions or occurrences.
The final rules further define and explain these requirements.
Key Concepts
Avoiding Unintended Consequences:
Certain people generally will not be considered for whistleblower awards under the final rules.
These include:
People who have a pre-existing legal or contractual duty to report their information to the Commission.
Attorneys (including in-house counsel) who attempt to use information obtained from client engagements to make whistleblower claims for themselves (unless disclosure of the information is permitted under SEC rules or state bar rules).
People who obtain the information by means or in a manner that is determined by a U.S. court to violate federal or state criminal law.
Foreign government officials.
Officers, directors, trustees or partners of an entity who are informed by another person (such as by an employee) of allegations of misconduct, or who learn the information in connection with the entity’s processes for identifying, reporting and addressing possible violations of law (such as through the company hotline).
Compliance and internal audit personnel.
Public accountants working on SEC engagements, if the information relates to violations by the engagement client.
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
Certain other people – such as employees of certain agencies and people who are criminally convicted in connection with the conduct – are already excluded by Dodd-Frank.
Under the final rules, the Commission also will not pay culpable whistleblowers awards that are based upon either:
The monetary sanctions that such culpable individuals themselves pay in the resulting SEC action.
The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated.
The purpose of this provision is to prevent wrongdoers from benefitting by, in effect, blowing the whistle on themselves.
Providing Information to the Commission and Seeking a Reward:
The rules also describe the procedures for submitting information to the SEC and for making a claim for an award after an action is brought. The claim procedures provide opportunities for whistleblowers to fairly present their claim before the Commission makes a final award determination.
Under the final rules, the SEC also will pay an award based on amounts collected in related actions brought by certain agencies that are based upon the same original information that led to a successful SEC action.
Clarifying Anti-Retaliation Protection:
Under the rules, a whistleblower who provides information to the Commission is protected from employment retaliation if the whistleblower possesses a reasonable belief that the information he or she is providing relates to a possible securities law violation that has occurred, is ongoing, or is about to occur. In addition, the rules make it unlawful for anyone to interfere with a whistleblower’s efforts to communicate with the Commission, including threatening to enforce a confidentiality agreement.
Supporting Internal Compliance Programs:
The final rules do not require that employee whistleblowers report violations internally in order to qualify for an award. However, the rules strengthen incentives that had been proposed and add certain additional incentives intended to encourage employees to utilize their own company’s internal compliance programs when appropriate to do so.
For instance, the rules:
Make a whistleblower eligible for an award if the whistleblower reports internally and the company informs the SEC about the violations.
Treat an employee as a whistleblower, under the SEC program, as of the date that employee reports the information internally – as long as the employee provides the same information to the SEC within 120 days. Through this provision, employees are able to report their information internally first while preserving their “place in line” for a possible award from the SEC.
Provide that a whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of an award, and that a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the amount of an award.
Other Recent Actions
Office of the Whistleblower:
In addition to whistleblower rules, the Dodd-Frank Act called upon the SEC to create an Office of the Whistleblower. That office, now headed by Sean McKessy, works with whistleblowers, handles their tips and complaints, and helps the Commission determine the awards for each whistleblower. The initial staffing of the office has been completed and the Investor Protection Fund, which will be used to pay awards to eligible whistleblowers, has been fully funded.”
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